Discover and read the best of Twitter Threads about #rehypothecation

Most recents (16)

🧵1/ There is an emergence of a variety of lending products around bitcoin. #Bitcoin as a bearer free instrument serves as prime collateral.

Referring to an article I recently published: "Why bitcoin is prestige #collateral for lending".…
2/Borrowing against your bitcoin makes economic sense for two reasons. First, there is a capital gains tax if you sell, and second, we are encouraged to spend fiat, not bitcoin, as long as the value of bitcoin is increasing faster than fiat interest rates.
3/ bitcoin should only be used to borrow against it, not to earn yield. Earning yield while being able to lose it all is not worth it. For lending purposes, you can use non-custodial solutions like @hodlhodl that are available.…
Read 15 tweets
1/ I’VE BEEN THINKING, while doing yard work, abt the #crypto crash & Fathers’ Day. They both relate to one of the biggest lessons my late dad taught me, which came from my grandpa (an 8th grade educated Iowa farmer who had a PhD in common sense). He scoffed at “paper wealth.”
2/ For context, my dad—his oldest child—was born just days after the 1929 stock mkt crash. Grandpa watched as some neighbors, who had leveraged their farms to play the roaring ‘20s stock mkt, lost them in the crash. Grandpa died before I was born but Dad passed his wisdom to me.
3/ That paternal nugget of common sense influenced my studies of finance & economics in school, in work, in reading history & in my journey of studying the whole range of economic schools of thought after the 2008 financial crisis. Applying it to today, what Grandpa observed…
Read 7 tweets
One word @CaitlinLong_: GREED.

You’ve been spot on. I struggled w/ noticing the same issue of #derivative and #TradFi games infecting #bitcoin & #Crypto over the last 1.5yrs or so.

Structurally it was quite easy to see. But...

/1 👉🧵 on a few thoughts.
you have to know how these things have played out in other markets as well as how intermarket relationships work within markets in general. And, you never really know how the change will play out. Especially, in new asset classes like #DigitalAssets.

It felt like most in the space chose not to acknowledge the changes & continue to pump the narrative of NGU and BTFD with little regard for what’s *actually* happening w/ the fundamental picture. Time horizon matters. All participants have different goals.
Read 21 tweets
QUESTIONS ANSWERED here about this🧵(thx for all the engagement!)
1) what do u mean by paper #bitcoin?
2) is all leverage bad?
3) why so sure that a leverage-flush reckoning day will come for bitcoin? Gold investors have waited forever.
4) can't traders hedge the risk? (haha, no)
2/ PAPER BITCOIN=a promise by an intermediary, such as an exchange, to deliver real #bitcoin. Unless you hold the private keys, you don't own bitcoin--what you own is a CLAIM to bitcoin (an IOU). Does your intermediary own enuf on-chain bitcoin to make good on all such claims???
3/ The honest truth is that probably no one other than your intermediary itself really knows & many intermediaries are likely running fractional. It is certain that the quantity of paper #bitcoin outstanding > the 18.9m on-chain bitcoins that exist, but by how much is unknowable.
Read 17 tweets
1/ I DIDN'T SEE SOMETHING UNTIL NOW. Often I've spoken about paper assets creating a fake supply that satisfies real demand, & that (all else equal) this causes an asset's price to fall. Most recently this came up in a debate with @timevalueofbtc abt using #MVRV to value #bitcoin
2/ The issue? RV isn't an accurate number bc it's impacted by all the paper #bitcoin issued by intermediaries. If all intermediaries always held 100% bitcoin reserves to back the bitcoin claims they issue, then RV would be reliable. But many intermediaries likely run fractional.
3/ I'm not saying RV isn't an observable # (of course it's observable). What I'm really saying is that RV isn't accurate--bc it's influenced by paper claims to #bitcoin being issued to satisfy demand for the real thing. You may have heard me talk about the 2017 Dole Food lawsuit.
Read 17 tweets
Time for a 🧵 on two charts (at the end) that seem to tell an interesting #Bitcoin story.

For several yrs @CaitlinLong_ has openly discussed the potential negative impact of #rehypothecation of #bitcoin by banks, wall street, hedge funds & the broader #tradfi community.
@saylor has discussed and shown the need for sound money and the value that having a savings mechanism brings to the system.

@JeffBooth has shed light on the fact that #deflation isn’t such a bad thing when #technology is actually making our lives better and costs cheaper.
@saifedean taught the 🌏 the importance of time, effort, and energy & the value that living by the #Bitcoin Standard can bring to individuals and countries across the globe.

@FossGregfoss has done a phenomenal job helping to #educate on the benefits of owning #volatile #assets.
Read 24 tweets
1/ @NYtimes story on #crypto/#banking deserves a thoughtful reply. Issue isn't black & white: anti-crypto forces try to paint us all w/ a broad brush. Bad actors deserve to be called out, but the article ignores fact that regulatory-compliant firms exist.…
2/ First--@ericliptonnyt/@el72champs you got a fact wrong & it deserves a correction. #Wyoming’s special bank charter doesn't allow “cryptocurrency deposits.” “Deposit” has a v specific meaning in banking: banks can only take deposits in fiat money (US$)--not in crypto. Pls fix.
3/ That’s a key distinction. Regulated banks can provide CUSTODY services for #crypto (like for securities) but CAN’T take deposits in ANYTHING except money. Article misses that critical point--it’s a firewall protecting Fed's payment system from exposure to anything other than $
Read 24 tweets
1/ GREAT ARTICLE abt how financial mkt plumbing really works, incl the real reason why Lehman failed & why the same probs still mostly exist: #rehypothecation + a shortage (!) of collateral despite frenzy of new govt debt issued. @JeffSnider_AIP @RaoulGMI…
2/ But lemme connect 3 dots abt how it relates to #crypto

* There's a SHORTAGE of collateral (T-bills, etc)--the stuff big dealer banks NEED in order to fund themselves. Facebook Libra/Diem could worsen that shortage a lot, so you can see why central bankers view it as a threat.
3/ The #repo mkt periodically has disruptions caused by collateral shortages/undercapitalization of the big dealer banks. @JeffSnider_AIP looks at March 2020 in this piece but many other examples exist, eg Lehman in 2008. When repo mkt seizes up, the probs ripple across fin mkts.
Read 14 tweets
1/ IT'S OFFICIAL!!! Welcome to #Wyoming, @krakenfx!


What a win-win for #crypto & Wyoming! As of **NOW** Kraken has a US bank charter—a 100% reserves-required, audit required (w/ #ProofOfReserves), custody via legal bailment, no #rehypothecation type of bank!🤠
2/ The vote of #Wyoming's Banking Board just concluded & it was UNANIMOUS! It took 27 months for the first #Wyoming SPDI to obtain a charter—congrats to the dozens of people who made it happen, esp @GovGordon, @TylerLindholm & Wyoming legislators & the Wyoming Division of Banking
3/ I’ll be back w/ more analysis later. Next applicant in line for #Wyoming SPDI is @AvantiBT later this Fall (more are on the way). But today is @krakenfx's day. As a shareholder, I'm so happy for @jespow & Kraken team! Applications for this charter opened a yr ago--took longer
Read 5 tweets
1/ MORE ANALYSIS-Goldman's new head of #digitalassets is a #repo trader based in LONDON. This is significant bc UK law basically has no limits on #rehypothecation. To be clear I'm not worried abt #bitcoin--as a system it's immune to WallSt's leverage games
2/ That doesn't mean its price won't be impacted tho--bc #rehypothecation fulfills real demand w/ artificially created supply & thereby suppresses price, all else equal. Rehypothecation works as long as there's a lender of last resort. But #bitcoin has no lender of last resort!🚧
3/ So, how many times could a #bitcoin be rehypothecated? In UK there's basically no limit bc the broker/dealer takes outright title to the customer's asset. This is why Lehman transferred so many of its assets to its UK subsidiary from its US subsidiary.…
Read 6 tweets
@ObiWanKenoBit @zanepocock @mrcoolbp @thibm_ @Tom_Harned @alphaazeta @MartyBent @matt_odell @BlockFiZac 1/ Yep—agree, @zanepocock, great job with the thread. A couple things: #rehypothecation **is** fractional-reserve banking by another name. FRB is typically associated with money (+ a central bank), but the exact same thing can happen w/ any asset (eg, a claim to #bitcoin, a loan
@ObiWanKenoBit @zanepocock @mrcoolbp @thibm_ @Tom_Harned @alphaazeta @MartyBent @matt_odell @BlockFiZac 2/ ...collateralized by #bitcoin, US Treasury bonds, Apple shares etc). Rothbard wrote that the only legit form of govt action was to ban FRB—were he alive today, we would have been screaming about #rehypothecation too bc it has the same effect—it distorts the price of money...
@ObiWanKenoBit @zanepocock @mrcoolbp @thibm_ @Tom_Harned @alphaazeta @MartyBent @matt_odell @BlockFiZac 3/ ...(ie, it distorts the interest rate). One beauty of #bitcoin is that it’s a pure experiment in free banking. No govt controls the base money, so all excess/phantom claims to it are created privately by intermediaries—hence, a pure experiment in free banking. It’s a great...
Read 7 tweets
1/ WOW-the Fed is looking to do a stealth QE5. I’d missed this but as usual Jeffrey Snider at @Alhambralnvest is on top of it + understands what it really means. Gee, ya think the Fed finally figured out WHY there are problems in the repo mkt—bc there’s...…
2/ ...only 1 real US Treasury security for every 3 owners whose brokerage accts show they own it (per IMF estimate)? It’s no shock why mkts periodically become illiquid when banks hoard claims on Treasuries (~2/3 of which aren’t real). The Fed needs a way to swap those claims...
3/ ...for something “real” when mkts seize & this is it—bank reserves. “Real” in quotes, sarcastically. The fact that this repo facility is on the table does, indeed, mean things aren’t quite right in fin mkts, as Jeff says. They never were. I suspect he’d agree. #rehypothecation
Read 3 tweets
1/ BOOM! #Wyoming just recognized clear, direct property rights for #digitalassets by passing SF125! This means #blockchain cos will prob want to apply WY law to your contracts, domicile here, &/or have a physical presence here. Thx again to the army of ppl who helped over months
2/ As @TraceMayer says, v impt for broad adoption of #crypto that it be “backwards-compatible w/ law.” SF125 enables that. Bill was amended w/ improvements & latest is here:…. Goes to @GordonGovernor for signature & could officially become law next week
3/ I'll publish analysis after it officially becomes law, but here's the key: #Wyoming law recognizes property rights in the DIRECT ownership of #digitalassets. Property law in US is determined by states, not the feds. WY not only did it first but did it right!! This applies to
Read 11 tweets
1/ TWEETSTORM about #Wyoming’s BIG REVEAL. This is long & info-packed, so buckle in. My native state is about to do bigger things for #blockchain, & the sector is about to pay Wyoming back big-time. Win-win! @Tyler_Lindholm @SenatorDriskill @TraceMayer @ForbesCrypto
3/ New bill 2 parts. 1-Digital asset custody via #SEC #CustodyRule wld create first true #QualifiedCustodian for digital assets (for investors who by law can’t self-custody). 2-Defines property rights for digital assets—doing something HUGELY IMPT for #bitcoin/virtual currencies
Read 40 tweets
1/ CRINGE ALERT: if the regulator of your #crypto exchange/custodian requires this, run! "A DAB (digital asset biz) shld have a minimum amount of assets on-hand, within the organisation, to withstand the withdrawal of all client assets." @BermudaMonetary…
2/ I found that gem in Bermuda's "Digital Asset Custody Code of Practice." Consumer protection is listed as the first core objective of the effort (…). Sorry, but I don't see much meaningful consumer protection in here. @TraceMayer would probably agree...
3/ ...and here's another gem, in a section titled Account Segregation🤔:
"While keeping client assets separate from its own, DABs may commingle client assets..." Believe it or not, the quote in the prior tweet was in a section titled Proof of Reserves! There's a lot of great...
Read 12 tweets

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